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Tenet Releases Preliminary Results for the Third Quarter of 2017, Announces $150 Million Cost Reduction Initiative and Appoints New Independent Director

  • Net loss from continuing operations attributable to Tenet shareholders is expected to be approximately $366 million;
  • Adjusted EBITDA is expected to be approximately $507 million, including an estimated $30 million impact due to lower revenues and higher expenses related to Hurricanes Harvey and Irma and $10 million of lower-than-anticipated revenues from the Texas Medicaid Waiver and Florida Medicaid programs;
  • Targeted cost reduction program intended to enhance margins and operating efficiencies; ongoing actions through mid-2018 are expected to yield $150 million of annualized run-rate savings by the end of 2018;
  • James Bierman to join board as part of ongoing board refreshment process.

Tenet Healthcare Corporation (NYSE: THC) has released preliminary financial results for the third quarter ended September 30, 2017. The Company also announced a cost reduction initiative and the appointment of a new independent director to the Tenet board of directors.

“Despite the impact of two hurricanes, the unanticipated Medicaid cuts in Texas and Florida, and overall volume weakness, we delivered Adjusted EBITDA within our Outlook for the quarter,” said Ronald A. Rittenmeyer, executive chairman and CEO. “Regardless, we must do more. We are moving quickly and decisively to improve financial results and returns for our shareholders. The cost reduction program we announced today includes a number of structural changes in the way we operate, all intended to reinforce accountability, improve agility and speed decision making. We believe these changes will help us drive organic growth, expand margins, and better support our hospitals and other facilities in delivering higher levels of quality and patient satisfaction.”

Mr. Rittenmeyer added, "We have and we will continue to review, analyze and pursue all options to enhance shareholder value."

Preliminary Results for the Third Quarter of 2017

The Company anticipates reporting net operating revenues after provision for doubtful accounts of approximately $4.586 billion and a net loss from continuing operations attributable to Tenet shareholders of approximately $366 million, or $3.63 per diluted share, in the third quarter of 2017. After adjusting for certain items, which are listed on Table #2 at the end of this release, Tenet expects to report an Adjusted net loss from continuing operations attributable to Tenet shareholders of approximately $17 million, or $0.17 per diluted share.

Adjusted EBITDA in the third quarter of 2017 is expected to be approximately $507 million and was negatively impacted by approximately $40 million as a result of the following three items: (i) an estimated $30 million of lower revenues and higher expenses associated with Hurricanes Harvey and Irma, prior to any insurance recoveries the Company may receive in future periods; (ii) $8 million of lower-than-anticipated revenues from the Texas Medicaid Waiver program; and, (iii) approximately $2 million of lower-than-anticipated revenues from the Florida Medicaid program due to changes associated with the Low Income Pool (LIP) program.

As compared to the third quarter of 2016, patient revenues in the Hospital Operations and other segment declined 2.3 percent on a same-hospital basis in the third quarter of 2017, with admissions declining 2.6 percent, adjusted admissions declining 2.2 percent and net patient revenue per adjusted admission declining 0.2 percent. The Company’s same-hospital revenue per adjusted admission was lowered by approximately 150 basis points due to the lack of CMS approval of the California Provider Fee Program. The Company estimates that Hurricane Irma lowered same-hospital admissions and adjusted admissions by approximately 50 basis points. Excluding the impact of the hurricane as well as patients that were insured by Humana in both the third quarters of 2016 and 2017, same-hospital admissions declined 1.2 percent and adjusted admissions declined 0.8 percent.

Revenues in the Ambulatory segment increased 0.9 percent on a same-facility system-wide basis as compared to the third quarter of 2016, with cases decreasing 2.4 percent and revenue per case increasing 3.4 percent. Hurricanes Harvey and Irma lowered same-facility system-wide case growth by approximately 210 basis points. Excluding the hurricanes as well as patients that were insured by Humana in both the third quarters of 2016 and 2017, same-facility system-wide cases decreased 0.3 percent.

Tenet’s preliminary financial results for the three months ended September 30, 2017 are subject to the completion of the Company’s quarterly financial and accounting review process.

The Company plans to report its final financial results for the third quarter ended September 30, 2017 after the market close on November 6, 2017 and will provide an updated Outlook for 2017 at that time. The Company will host a conference call on November 7, 2017 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). A live audio webcast and an accompanying presentation will be accessible through the Company’s website at www.tenethealth.com/investors.

Cost Reduction Initiative

Tenet has begun the implementation of an enterprise-wide cost reduction initiative – comprised primarily of headcount reductions and the renegotiation of contracts with suppliers and vendors – which is intended to lower annual operating expenses by $150 million. The Company anticipates achieving the full annualized run-rate savings by the end of 2018.

Approximately 75 percent of the savings are expected to be achieved through actions within the Company’s Hospital Operations and other segment, including the elimination of a regional management layer and streamlining corporate overhead and centralized support functions. Tenet also expects to realize savings from actions within the Company’s Ambulatory Care and Conifer business segments.

In total, the Company anticipates eliminating approximately 1,300 positions, including contractors. In conjunction with this initiative, Tenet expects to incur pre-tax restructuring costs of approximately $40 million in the fourth quarter of 2017. Substantially all of these costs relate to employee severance payments that will begin in the fourth quarter of 2017.

Board Appoints New Independent Director

The Company’s board of directors appointed James Bierman to the board, effective immediately. Tenet’s board now consists of 10 directors, nine of whom are independent.

“I am pleased to announce the appointment of Jim to our board, in furtherance of our commitment to ongoing board refreshment and strong governance,” said Mr. Rittenmeyer. “Jim is highly qualified with significant operational and financial experience in the healthcare sector, and we look forward to benefitting from his valuable insights and perspective. We are committed to continuing to refresh the board with highly talented and engaging individuals in the coming months.”

Biographical Information

Mr. Bierman served as President and Chief Executive Officer of Owens & Minor, Inc., a Fortune 500 company and a leading distributor of medical and surgical supplies, from September 2014 to June 2015. Previously, he served in various other senior roles at Owens & Minor, including President and Chief Operating Officer from August 2013 to September 2014, Executive Vice President and Chief Operating Officer from March 2012 to August 2013, Executive Vice President and Chief Financial Officer from April 2011 to March 2012, and as Senior Vice President and Chief Financial Officer from June 2007 to April 2011. From 2001 to 2004, Mr. Bierman served as Executive Vice President and Chief Financial Officer at Quintiles Transnational Corp. Prior to joining Quintiles Transnational, Mr. Bierman was a partner at Arthur Andersen LLP. Mr. Bierman earned his B.A. from Dickinson College and his MBA at Cornell University’s Johnson Graduate School of Management. He formerly served as a director of Owens & Minor and Team Health Holdings, Inc.

Non-GAAP Financial Information

This press release includes certain non-GAAP measures, such as Adjusted EBITDA, Adjusted net income (loss) from continuing operations attributable to Tenet shareholders, and Adjusted diluted earnings (loss) per share from continuing operations attributable to Tenet shareholders. Reconciliations of these measures to the most comparable GAAP measure are contained in the tables at the end of this release.

The results of many of the facilities in which the Ambulatory segment has an investment are not consolidated by Tenet. To help analyze the segment’s results of operations, management uses system-wide measures, which include revenues and cases of both consolidated and unconsolidated facilities.

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